Stock value using PS ratio to estimate selling price An investor is going to buy stock, collect dividend payments for five years, then sell the stock. The investor demands a certain percent return on investment. Based on the following details, what is the maximum price the investor should be willing to pay for this stock? Scenario A common stock: • Dividend expected at end of first year = $1.00 Expected growth rate of dividends = 12% until end of year 5 - Revenue $30 million at end of year 5 Shares outstanding = 1,000,000 shares PS (Price to Sales) ratio expected at end of year 5 = 0.5 times Required rate of return = 10% O Selling price = - at end of year 5

Stock value using PS ratio to estimate selling price An investor is going to buy stock, collect dividend payments for five years, then sell the stock. The investor demands a certain percent return on investment. Based on the following details, what is the maximum price the investor should be willing to pay for this stock? Scenario A common stock: • Dividend expected at end of first year = $1.00 Expected growth rate of dividends = 12% until end of year 5 - Revenue $30 million at end of year 5 Shares outstanding = 1,000,000 shares PS (Price to Sales) ratio expected at end of year 5 = 0.5 times Required rate of return = 10% O Selling price = - at end of year 5

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Calculating Return Components An investor purchases one share of stock for $50. After one year, they sell the share for $55. During the year, they receive $7 in dividends. a) What was the dividend yield, in percentage terms? b) What was the capital gain from price appreciation on the stock, in percentage terms? c) What was the total return in dollars? What was the total return, in percentage terms?
A stock is selling today for $50 per share. At the end of the year, it pays a dividend of $3 per share and sells for $59. Required: a. What is the total rate of return on the stock? b. What are the dividend yield and percentage capital gain? c. Now suppose the year-end stock price after the dividend is paid is $44. What are the dividend yield and percentage capital gain in this case?
A share of stock with a beta of 0.8 currently sells for $50. Investors expect the stock to pay a year-end dividend of $5. The T-bill rate is 1%, and the market risk premium is 6%. If the stock is perceived to be fairly priced today, what much be investors' expectation of the price of the stock at the end of the year? $_ Hint: [CAPM] Expected Return (R) = Rf + Beta *Market Risk Premium; Expected Return (R) = Dividend Yield + Capital Gains Yield, where dividend yield=D1/PO and capital gains yield = (P1-Po)/PO
Use the dividend discount model to value a share of Toyota’s stock (ticker symbol: TM) as of December 31, 2021. In your application of this model, use the data provided on the most recent Toyota Value Line report to estimate the necessary dividend payment and the firm’s equity beta. Assume, that the expected growth rate of dividends in perpetuity (g) ranges from 2.5% to 3.5%/year.
RussellCo (RCO) stock has the following forecasted dividend per share stream: $1.14 at the end of years 1 to 10, $1.80 at the end of year 11, after which dividends are expected to grow by 2% per year, forever and ever. Using a required return of 14%, calculate a fair price for RCO's stock today (b) Based on the forecasted dividend stream, calculate what RCO's stock price should be 16 years from today
Required Returns Suppose we observe a stock selling for $40 per share. The next dividend will be $1 per share, and you think the dividend will grow at 12 percent per of the stock? What will the stock be worth in five Problem 1.) 7.2. year forever. What is the dividend yield in this case? The capital gains yield? The total required return? (See Problem 3.)
Given the following information for the stock of Foster Company, calculate the risk premium on its common stock. Current price per share of common stock $37.01 Expected dividend per share next year $1.39 Constant annual dividend growth rate 8.4% Risk-free rate of return 5.2%
Integrative—Risk and Valuation Given the following information for the stock of Foster Company, calculate the risk premium on its common stock. Current price per share of common stock $33.82 Expected dividend per share next year $1.12 Constant annual dividen growth rate 8.8% Risk-free rate of return 4.3%
You are considering purchasing a share of preferred stock with the following characteristics: par value = $100 dividend rate = 12% per year payment schedule = quarterly maturity date = required rate of return = 6% per year current market price = $135 per share Based on this information, answer the following: A. What is the dollar amount of the quarterly dividend on this stock? B. Using the Discounted Cash Flow Method, what is the dollar value of this stock? C. Using the Discounted Cash Flow Method, what is the annual expected return for this stock? D. Based on your answer to part B, should you invest in the stock? Why or why not? E.…
H the expected dividend on a share of stock is $1 next year thedividends are expected to grow at a 5% rate per annum indefinitelyand ihe siock currently selling for $14.29 what is the approximateTerum required by the stockholders?a. 21% pa b. 12% pa C. 12% pa
Rahu
4. Expected dividends as a basis for stock values The following graph shows the value of a stock’s dividends over time. The stock’s current dividend is $1.00 per share, and dividends are expected to grow at a constant rate of 2.70% per year. The intrinsic value of a stock should equal the sum of the present value (PV) of all of the dividends that a stock is supposed to pay in the future, but many people find it difficult to imagine adding up an infinite number of dividends. Calculate the present value (PV) of the dividend paid today (D₀) and the discounted value of the dividends expected to be paid 10, 20, and 50 years from now (D10, D20, D50D10, D20, D50). Assume that the stock’s required return (rss) is 8.40%. Note: Carry and round the calculations to four decimal places. Time Period Dividend’s Expected Future Value Dividend’s Expected Present Value Now End of Year 10 End of Year 20 End of Year 50 Using the orange…

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